Pharmaceutical Logistics Developing into a New Era

For some period in the future, China’s logistics industry will enter the new development stage with quality and benefit improvement as the core, and we must stick to efficiency improvement, quality enhancement, and innovation driving, actively introduce new technology, new model, and new idea, do ‘addition’ for transformation and upgrading, and gradually release the new driving force for industry development; stick to deepening structural reform of the supply side, reduce the logistics cost of the whole industry chain, improve logistics supply quality, do the ‘subtraction’ for cost decreasing and benefit increasing, and continue to strengthen the competitiveness of real economy,” said He Liming, President of China Federation of Logistics & Purchasing, when receiving interview of reporter of China Economic Times recently.

According to He Liming, some period in the future will be the key period for the quality and efficiency improvement of the pharmaceutical logistics industry of China. The pharmaceutical logistics industry is closely related to people’s health, and has big development space; the sustained and rapid development of the industry is of positive significance to improving the health security and securing a decisive victory in building a moderately prosperous society in all respects. How the future directions of the industry will be and how the industry shall embrace changes need the common attention of the government, industry, and enterprises.

China’s pharmaceutical logistics industry shows good development momentum

China Economic Times: What do you think is the current situation of the pharmaceutical logistics and circulation field in China? What are the new characteristics?

He Liming: As an important market segment of the logistics industry, the pharmaceutical logistics has a clear trend of upstream and downstream synergetic development of supply chain, and overall prominent quality and benefits. According to recent data, the total sales of the seven big categories of medical commodities in China reached RMB 1.8 trillion in 2016, growing by 10.4% year on year, with the market demands maintained fast growth. In the first half of this year, the added value of pharmaceutical enterprises above a designated scale grew by 11.3% year on year, with 4.4 percent higher than the overall industry growth, at the forefront of the whole industry. The growth of demand for pharmaceutical logistics was above 10% in the first three quarters of this year, with the market maintaining a fast growth situation. Overall, the pharmaceutical logistics and circulation field in China mainly shows the following new characteristics:

Firstly, the government regulation becomes increasingly strict. The promotion and implementation of the Plan on Deepening the Reform of Medical and Health System during the 13th Five-year Plan Period and Several Opinions on Further Reforming and Improving the Policies for Drug Production, Distribution and Use issued by the State Council of China in the first half of this year, and the Amendment of the Drug Administration Law of the People's Republic of China (Draft for Comment) issued recently, especially the “two-invoice system” reform for pharmaceutical product purchasing, raise the requirements for regulation of pharmaceutical product circulation in China to an all-time high. In the medical device field, the Decision on Amending the Regulation on the Supervision and Administration of Medical Devices issued by the State Council of China, and the intensive unannounced inspections conducted by China Food and Drug Administration, lead to stricter safety regulation of device quality.

Secondly, the enterprise merger and restructuring are ongoing. According to the industry monitoring data, pharmaceutical circulation enterprises of some size are actively conducting layout on the market, for example, large pharmaceutical enterprises such as China Resources and Shanghai Pharma continue to absorb outlets through merger and restructuring, conduct layout in China, and move towards the networking, intensification, and informatization objectives. In the first half of 2017, China Resources rapidly expanded and laid out selling network in Xinjiang, Qinghai, Jiangxi, and Hainan; Shanghai Pharma also expanded its presence in Qinghai and Chongqing; sales of Cardinal Health China also came to a close. The pharmaceutical circulation industry in China will show the situation that larger enterprises become larger and strong enterprises become stronger.

Thirdly, specialized logistics enterprises have mushroomed. Third-party logistics enterprises have competed to enter the pharmaceutical logistics market, from S.F. Holding entering the pharmaceutical logistics market, Shanghai Pharma joining hands with DHL, to Jingdong Mall uniting 8 pharmaceutical enterprises. And each big pharmaceutical circulation enterprise has successively made their logistics system independent, and formed specialized pharmaceutical logistics enterprise. The socialized and specialized pharmaceutical logistics enterprise gradually becomes the trend, as the market is gradually open.

Fourthly, the innovation of service mode is significantly effective. The multi-warehouse linkage service mode represented by those of Sinopharm and Zhejiang Int’l is significantly effective. Enterprises achieve the linkage of each logistics center by adopting the integrated multi-warehouse networking operation system in China or the corresponding provinces, and provide services to customers through the flattened logistics operation mode, to reduce repetitive operation and effectively increase the operation efficiency.

Fifthly, seizing terminals becomes the focus of competition. Outflow of prescription drugs becomes the development trend with the successive advancement of policies such as pharmaceutical product tendering procurement, “two-invoice system”, and hierarchical diagnosis and treatment. New terminals such as chain drugstore DTP pharmacy, chronic disease management, TCM clinic, online hospital, and online drugstore continue to expand, and are closer to consumers and target customers. The demand for the “last mile” pharmaceutical logistics continues to be rapidly released.

Sixthly, upgrading of the pharmaceutical supply chain is accelerated. With the changes of the industry demand characteristics, more and more pharmaceutical enterprises start to use the supply chain ideas for horizontal or vertical service extension, and transform towards supply chain integrated service provider. Each big circulation enterprise has competed to construct the supply chain integrated management platform, to provide value-added services and integrated solutions to upstream and downstream, increase logistics operation efficiency, and reduce supply chain operation cost.

The pharmaceutical logistics industry in China has six development trends

China Economic Times: The report at the 19th National Congress of the Communist Party of China proposes the Healthy China initiative, requiring placing people’s health in a strategic position of prior development, therefore, as the basic condition to improve the health security, the pharmaceutical logistics has ushered in an important development opportunity. The pharmaceutical circulation and logistics industry of China is currently at an important stage with quality and efficiency improvement as the core. And what are the main new development trends?

He Liming: firstly, the industry concentration will continue to rise. China requires achieving the “two-invoice system” in 2018, and enterprise merger and restructuring will continue with optimization of the order of pharmaceutical product purchase and sales and reduction of pharmaceutical product circulation links. The market shares of the top 10 enterprises in the medical device circulation field of China is lower than 10%, therefore, there is still huge space for market integration.

Secondly, the specialization and socialization of logistics will become more widespread. As the market becomes increasingly open, third-party logistics will enter the pharmaceutical logistics field in many ways, and with the attention to the pharmaceutical product quality and normalization of market regulation, the specialized and socialized pharmaceutical logistics enterprises will show more prominent value, and make up for the deficiencies of existing pharmaceutical circulation enterprises in resource, network, and capability.

Thirdly, the service mode innovation will become a competition hotspot. Customer demands are the fundamental driver for innovating service mode. The Supply, Processing and Distribution (SPD) mode will be optimized, as hospitals pay more attention. Chain drugstores and online drugstores will provide more comprehensive services by online and offline combination. Pharmaceutical logistics orders will tend to become fragmented, to meet the personalized demands of consumers.

Fourthly, standardization of the pharmaceutical logistics in China will gain staged achievements. The degree of standardization of an industry is one of the important measures of the modernization level of development of the industry. The enhancement of standardization of logistics complements the improvement of logistics service quality and operation efficiency, and reduction of logistics cost. Our federation will continue to promote the standardization work of logistics, and guide pharmaceutical logistics to gradually move toward standardization, normalization, and modernization.

Fifthly, the application of the logistics technology will widen the competitive gap. Some leading enterprises are expected to achieve the visibility, controllability, and manageability of the whole logistics process, gradually build the intelligent pharmaceutical logistics, and win the first-mover competitive advantages, with the development of the logistics informatization, intelligence, and automation, especially, the application of advanced IT such as mobile internet, big data, and cloud computing.

Sixthly, transformation of the pharmaceutical supply chain will become hot. Currently, the competition of enterprises has risen to the competition of supply chains. The pharmaceutical industry has the specialized characteristic of production, supply, and sales interconnected development, and also the outstanding advantage for developing modern supply chain. The pharmaceutical supply chain will enter the rapid development period, as the pharmaceutical market is gradually open in China, customer demands continue to rise, and the industry chain upstream and downstream deepen the integration.

China Economic Times
Wang Jingjing